10:
That's a good question. If he simply pardoned them and allowed them to continue in their positions, he would accept a high risk for serious future trouble. It would make all nobles ponder the possibility of one-sidedly rejecting the king's orders with no repercussions. It would also make the common citizens think that they can either get away with crimes (nearly) scot-free or alternatively that such mercy is only received by high nobles. The latter wouldn't really be unexpected in a medieval society, but it would make the people believe the new king is the same as any other king, and all of his fancy speeches about making the country great again are nothing but empty talk.
Executing the dukes could have an ill effect on the races they represent, though. Kazuya could hardly execute them and allow their sons/daughters to take over, either. The grudge would be too much. However, the lion duke could die honourably in combat. He seems like the kind of man that his family would accept it graciously. If the first son/daughter swore alllegiance to Kazuya before taking over, it might fly. Hard to say about the dragonewt duke, though. The daughter is Liscia's friend, but it's no good if she hated Kazuya. Kazuya might need to imprison or exile the man.
One funny possibility that might work with the dragonewt duke is to disclose his part as a ploy. Since the people involved in his case are quite limited, if Kazuya can get the duke's cooperation, he could tell the population the air forces never betrayed him in the first place, that it was just strategic misinformation to fool both the army duke and the invading foreign nation. Of course he would still need to make the dragonewt duke pay reparations under the table. The poor navy lost their ship, after all.