Airbus and Dassault Aviation announced on Wednesday they intend to team up on the development of the future French-German combat fighter, a project Berlin and Paris unveiled last year.
The two firms "have decided to join forces for the development and production of Europe's Future Combat Air System," which is intended to enter service by 2040, they said in a joint statement released at the Berlin air show.
The French and German governments are expected to make an announcement during the air show about their intention to move forward with the project.
Airbus and Dassault have been rivals in the development of combat aircraft.
Dassault builds the Rafale which is France's main fighter jet, while Airbus is a partner in the Eurofighter Typhoon which is used by several European nations, including Germany.
Dassault's chief executive Eric Trappier told journalists that the two firms had reached an agreement in principle to work together.
He called it "a first message to tell (policymakers) we are ready in the field of a future air combat system".
The chief executive of Airbus's defence unit, Dirk Hoke, called the project a "huge step forward" in ensuring the development of technologies to ensure European sovereignty.
"It can only be done, not only when the governments work together, but when key industrial partners team up," he said.