Look into Captive Runtime. It is a feature in AIR that does exactly what you are looking for.
Air runtime is installed automatically for you there is no need to bundle it that way. The Captive Runtime bundles your application with AIR runtime dll taken from your SDK at time of compilation. This release type doesn't require separate AIR download, but it doesn't produce installer of any kind for your application - just a bundle (your swf + air dll + project descriptor). You can use tools to package the whole thing into msi isntaller. Tools like advanced installer, install jummer or, WiX tool are used for that.