That's the old model, when no money changed hands. But money does actually flow between AC and AE, as both are operating subsidiaries of ACE, not divisions of the old AC. Each has its own separate finances, and thus after factoring out the cost of miles purchased by AC from AE, and seats by AE from AC, real cheques flow between the AE and AC as it is AC that sells more $s worth of seats for awards than miles AC buys. So AC makes money from AE in this way, and ACE makes money from this as well as from the profit AE makes selling miles to third parties.

Selling all of AE makes little sense for ACE, as it then loses a money-generating subsidiary. Selling off a minority interest does get it cash, but also reduces this money-generator's contribution. Unless ACE really needs immediate low-cost cash, why dump any of AE? Even more so now with JetsGo out of the picture, there will be no shortage of low-interest lenders who would refinance AC's current debt with GCE. And profits will certainly be possible on a consistent basis, keeping the share price high and Cerberus happy.

BTW, at the present time, AE is the only FF program that actually pays cash for the seats it buys from its host airline (AC). All the others use an internal book transfer, and value seats at a far lower price. It is only when issuing seats on alliance partners that these airlines actually pay cash -- after a netting out for mileage bought by the respective alliance partner -- while AE actually purchases in cash these seats too.

AE could not afford to extend the Instant KK to Elites as these seats cost them considerably more than Avenue or Classic awards, coming as they do from full revenue inventory and from which AC will expect virtually market value. This is also why Avenue has not been extended to Exec class awards. These seats are too valuable to AC to sell off cheaply, and too costly for AE to purchase on an increased basis.