I had the exact same issue. The case I was using was a Speck Folio case - advertised to be appropriate for the IPad Pro 11 as well as the IPad Air 4th generation. In that Speck case my IPad Air was not exhibiting the sleep/wake function when I closed/opened that case, and - just as you saw - the Lock/Unlock setting wasn't in the Settings under Display and Brightness. I called Apple Support, did a complete restoration of the IPad to factory settings, but nothing worked.
Then I bought an Apple Smart Folio case designed for the IPad Air 4th generation. I placed the IPad in that case and - not only did the IPad sleep/wake when the case was opened and closed, but the Lock/Unlock setting was now right there under Display and Brightness.
So it looks like the case needs to be appropriate to the Air 4th generation - and the IPad needs to be in that case - before that Lock/Unlock setting will appear.