What I don't understand is why fighters refuse to intercept and why the flack is so ineffective. I would really appreciate it if one of the developers could explain this to me.
Odds are, the attacks are being made by night. If you have no fighters set to NM, then there will be no interception.
As the Soviets, I will use my Partisan air supply assets during my player turn to conduct night Ground Attacks against enemy stacks that I intend on attacking, or against HQs identified during recon. These, in addition to the swarms of U2VS biplanes that the Soviets get stuck with, can soften the defense, and score some lucky hits against HQs.
As the Axis, I don't bother with the switching to and from NM status that is necessary to make night attacks. Mostly, bacause I'm generally running more of a Ground Support oriented air force, instead of Ground Attack. Also, because I usually have enough of a local air superiority that I actually want to pull Soviet air forces into combat where my fighters can shoot them down.
Thanks. I'll try putting some fighters onto night missions and see if that helps.