A source inside Air New Zealand said when engineers in Christchurch fitted the new engine to the plane they bolted it to the airframe, connecting and wiring it in, before fully testing it.
They did not work on the inside of the motor, as it was new.
The source said on the aircraft's third flight, one of the internal rotors became loose which resulted in an oil line breaking and the fire broke out as the oil hit the hot engine.
E tū Union represents engineers, cabin crew and firefighters at Wellington Airport.
The union's head of aviation, Savage, told Morning Report the fault appears to be the engine itself, rather than any of the work done by the engineers.
"This is based on some preliminary information that the union has received from Christchurch, and the information that we had was it appears that a part inside the engine, possibly one of the rotors on the turbine was loose, that there was a vibration, and that it caused either damage or shearing to one of the oil lines, and then the oil leak is what caused the smoke and the fire."
"As you can appreciate, these engineers take all of this work very seriously and there is very strict guidelines about what needs to be done to ensure the engine is ready to go."
But as the part that potentially caused the fire was inside the engine, it would not have been part of any testing before the engine went on board.
The engine was manufactured by Pratt and Whitney, who have a long history of making engines for the ATR aircraft.
"Obviously, it's of concern if this is something that is a problem with these engines, or whether this is just a one-off, we don't know that information just yet.
"There has been a lot of engine problems with the Pratt and Whitney engines that are used on the A321 Neo, so I'm sure any of the airlines that use this engine are watching closely to see if there is some sort of larger problem."
The Transport Accident Investigation Commission report into the incident on September 1 is ongoing. Air New Zealand said it would not comment until an investigation into the cause of the fire is completed.