'AE' is only known to appear in one word, that word being 'Mahfaeraak'. For that reason it is generally assumed to have been a mistake. I posted a question on the question board asking how we know it is a mistake, and I got directed to the forums because it is a better place to discuss.

How do we know that 'AE' isn't just a super rare occurence, like double-n's in English words? 

Mind me asking what you think it should be? I don't really think it's a mistake, but interpretations do vary.

'AE' and 'ey' share the same pronunciation, and 'ey' has a dedicated rune, so it's always preferable.

My take on mahfaeraak is that Bethesda made that specific word before they had all their vowels set in stone. It appears in the "Song of the Dragonborn", which was one of the first, if not the first thing Bethesda wrote in the dragon language. Afterwards they got their vowels sorted out and either didn't feel the need to change mahfaeraak or couldn't because it already appeared in some early promotional material for the game.

From an in-universe perspective, we can certainly consider "ae" to be a rare spelling and not necessarily a mistake. Maybe it comes from an ancient Nordic word and something got lost in transliteration.