In the bowl of a stand mixer fitted with the dough hook, stir together lukewarm milk, 1 teaspoon of sugar, and yeast.
Let the mixture sit for 10 minutes until foamy.
Add the remaining 1/4 cup sugar, salt, egg, melted butter, and 2 cups of flour. Mix on low speed until combined, add the remaining cup of flour slowly, and mix until the dough no longer sticks to the bowl.
Increase speed to medium-low and knead for 5 minutes, until the dough is elastic and smooth.
Place the dough into a lightly greased bowl and cover it with plastic wrap. Let rise in a warm place until doubled, about 1 hour.
Turn the dough onto a floured surface, gently roll out to about 1/2 inch thickness.
Using a 3-inch round cutter cut out 10-12 donuts and use a 1-inch round cutter to remove the center.
Transfer donuts and the donut holes to a lightly floured parchment paper-covered baking sheet and cover loosely with greased plastic wrap or waxed paper.
Let donuts rise until doubled in volume, about 30 minutes.
Preheat Air Fryer to 350 degrees F.
Spray the basket with oil spray, transfer the donuts to the Air Fryer basket in a single layer and make sure they do not overlap and there is a 1-inch distance between them.
Spray donuts with oil spray and cook for 4-5 minutes or until golden brown. Repeat with remaining donuts and donut holes. Cook in batches if needed.