Why yum update is failing with 'Error: xz compression not available' ?

Issue

• yum update fails with error,

# yum update
Loaded plugins: product-id, refresh-packagekit, rhnplugin, security,
              : subscription-manager
This system is receiving updates from Red Hat Subscription Management.
This system may not be registered to RHN Classic or RHN Satellite. SystemId could not be acquired.
You can use rhn_register to register.
RHN Satellite or RHN Classic support will be disabled.
Error: xz compression not available
You have mail in /var/spool/mail/root