ruby gsub cannot replace more than 1 character if file is iso8859-1

Question

I just noticed very strange behavior of gsub method and maybe somebody can explain this to me. I have file which I open with standard

f=File.read(filename)
puts f.gsub('xxxxx','a')

this works fine and all xxxxx strings are replaced with a

if I open same file encoded originally in iso-8859-1

f=File.read(filename,:encoding => 'iso-8859-1')
puts f.gsub('xxxxx','a')

this doesnt work...there is no error, just ignores and xxxxx is not replaced but with 1 char only it works nice

f=File.read(filename,:encoding => 'iso-8859-1')
puts f.gsub('x','a')

is there a reason why?

edit: I am adding example file as a link to gdrive...it is default export from sql server file_in_zip