Flexible pipes conveying fluid are often subjected to parametric excitation due to time-periodic flow fluctuations. Such systems are known to exhibit complex instability phenomena such as divergence and coupled-mode flutter. Investigators have typically used weighted residual techniques, to reduce the continuous system model into a discrete model, based on approximation functions with global support, for carrying out stability analysis. While this approach is useful for straight pipes, modelling based on FEM is needed for the study of complicated piping systems, where the approximation functions used are local in support. However, the size of the problem is now significantly larger and for computationally efficient stability analysis, model reduction is necessary. In this paper, model reduction techniques are developed for the analysis of parametric instability in flexible pipes conveying fluids under a mean pressure. It is shown that only those linear transformations which leave the original eigenvalues of the linear time invariant system unchanged are admissible. The numerical technique developed by Friedmann and Hammond (Int. J. Numer. Methods Eng. Efficient 11 (1997) 1117) is used for the stability analysis. One of the key research issues is to establish criteria for deciding the basis vectors essential for an accurate stability analysis. This paper examines this issue in detail and proposes new guidelines for their selection. © 2003 Elsevier Science Ltd. All rights reserved.