PARIS (Reuters) - Airbus
The airline also took a further 25 options on the planes, the companies said at the Paris Airshow on Wednesday.
Industry sources had told Reuters on Tuesday the carrier was about to announce the deal after talks narrowly avoided collapse.
Air France-KLM has been at loggerheads with suppliers over issues mainly including maintenance of the plane's Rolls-Royce engines ever since the deal was first mooted in 2011. Air France and Rolls had clashed over conflicting ideas for engine supply deals.
The airline said on Wednesday, however, that it had signed a memorandum of understanding with Rolls-Royce
Rolls said the deal to power the 25 A350s was worth $1.1 billion at list prices.
Air France traditionally orders engines from Rolls' U.S. rival General Electric
Air France-KLM is seeking to lower costs by cutting jobs and restructuring its network as it aims to return to profit and cut debt by 2 billion euros by the end of next year. It faces soaring fuel costs, a worsening cargo business and tough competition from Gulf and low-cost carriers.
"This shows that despite some difficulties Air France-KLM is facing, we are in sufficiently good shape to be able to plan the renewal of our long-haul fleet," said Alexandre de Juniac, who is due to become Air France-KLM chief executive from July 1.
Air France-KLM currently operates a fleet of just over 190 Airbus aircraft.
By the end of May, the A350 XWB had won 613 firm orders from 33 customers worldwide.
(Reporting by Maria Sheahan; Editing by James Regan)